Whenever you fail to pay your taxes on time, the IRS can file a federal tax lien for the full amount of the taxes you owe plus interest and penalties. The lien attaches to your real and personal property. This does not mean that the tax authorities will seize and sell your property, it just gives them first priority over the sale proceeds. If you sell your home while a lien is in place, for example, the IRS will be paid out of the sales proceeds first before either you or the mortgage company are paid.
Once a tax lien is filed, you’ll receive a Notice of Federal Tax Lien and the lien becomes a matter of public record. This information shows up on your credit report and, like other types of public records, will have an immediate negative impact on your credit score. With a tax lien present on your credit report, you’re going to find it difficult to obtain future credit or loans. A tax lien will remain in place until one of the following events occurs:
- The IRS “withdraws” the lien because it was filed in error or because you meet the IRS “Fresh Start Initiative” requirements
- The IRS “releases” the lien because you’ve paid off the tax liability
- The lien “expires” under the statute of limitations. The IRS generally has 10 years to collect what is owed to it but that period can be extended in all sorts of circumstances.
How Do You Request a Tax Lien Withdrawal From the IRS?
If you meet the criteria for the Fresh Start Initiative, you must complete and file Form 12277, Application for Withdrawal of Notice of Federal Tax Lien. Assuming the IRS grants your request; it will file Form 10916(c), Withdrawal of Filed Notice of Federal Tax Lien, with the county records office and send you a copy. You don’t have to contact the county records office yourself or provide further proof of the tax lien payment – the IRS will take care of everything for you. This withdrawal notice will find its way to the credit reporting bureaus automatically, but you can alert them to it if you don’t want to wait. Do this by filing a dispute with each of the three credit reporting bureaus.
In order to make this process easier and smoother, it is advisable to hire the services of a qualified tax professional to help you with the filings.
How to obtain a Tax Lien Release
To release a tax lien, you have to pay the tax debt in full or enter into an Offer of Compromise where the IRS agrees to accept payment of just part of the lien in exchange for a release. Releasing a tax lien means that public records are updated to show that the IRS no longer has any legal claim to your property. This does not mean that the lien will be removed from your credit report; the entry can remain up to seven years even if you pay the debt. In an instance like this, you will need a tax professional on your side to help you negotiate effectively.
By law, the IRS must arrange for the release of your lien within 30 days after you have paid your tax debt and provide you with a copy. If you have not received a copy of the release after 30 days, call the Centralized Lien Operation on 800-913-6050 to check the status of the IRS lien release.
Occasionally, we will need to prompt the IRS into releasing the lien after you’ve paid the tax debt. To request a Certificate of Release where one has not been issued, we will send a tax lien release letter to the IRS containing the following information:
- Your name, address and telephone number
- The date
- A copy of the Notice of Federal Tax Lien
- An explanation of why the lien should be released
- Evidence that you’ve paid the tax debt such as an IRS receipt, a cancelled check, a record of an electronic money transfer, or some other proof of payment.
If there’s an unpaid balance on your account, you’ll need to settle that in full before the IRS will issue a lien release. Call us now to get more information about how we can help you lift the tax lien on your property.